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Use the following information to compute profit margin for each separate company a through:a. Net income : $4,361 , Net sales : $44,500b. Net income : $97,706 , Net sales : $398,800c. Net income : $111,281 , Net sales : $257,000d. Net income : $65,646 , Net sales : $1,458,800e. Net income : $80,142 , Net sales : $435,500Which of the five companies is the most profitable according to the profit margin ratio? Interpret that company's profit margin ratio.

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Answer:

Company c. is the most profitable according to the profit margin ratio.

Profit margin ratio describes that what percentage of sales is left after paying all the cost and expenses of the company. It shows the share of profit in the sales value.

Explanation:

a.

Net income : $4,361

Net sales : $44,500

Profit Margin Ratio = ( Net Income / Net sales ) x 100

Profit Margin Ratio = ($4,361 / $44,500) x 100 = 9.8%

b.

Net income : $97,706

Net sales : $398,800

Profit Margin Ratio = ( Net Income / Net sales ) x 100

Profit Margin Ratio = ($97,706 / $398,800) x 100 = 24.50%

c.

Net income : $111,281

Net sales : $257,000

Profit Margin Ratio = ( Net Income / Net sales ) x 100

Profit Margin Ratio = ($111,281 / $257,000) x 100 = 43.30%

d.

Net income : $65,646

Net sales : $1,458,800

Profit Margin Ratio = ( Net Income / Net sales ) x 100

Profit Margin Ratio = ($65,646 / $1,458,800) x 100 = 4.50%

e.

Net income : $80,142

Net sales : $435,500

Profit Margin Ratio = ( Net Income / Net sales ) x 100

Profit Margin Ratio = ($80,142 / $435,500) x 100 = 18.40%

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